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Profit-sharing Schemes in NSW Awards & Enterprise Agreements

Introduction
Long term benefits
A straight-forward profit-sharing system
Profit-sharing in the public sector

Introduction

Profit-sharing schemes can create a shared goal for employees and management. Increasingly sophisticated arrangements are being developed to reward employees and to recognise their contribution to the success of the enterprise.

A survey of NSW enterprise agreements in July 1998 found that profit-sharing arrangements are being used in both the private and public sectors. These case studies show how profit-sharing schemes have been introduced in three NSW enterprise agreements.

Long term benefits

A Sydney transport company has operated a successful profit-sharing scheme for four years, with more than $8 million being paid to employees. The profit-sharing scheme does not replace basic award remuneration levels and is not guaranteed. Detailed information on the profit-sharing scheme is included in the enterprise agreement.

Payment of the quarterly bonus depends on the company's performance, the contribution made by each operating area and the individual's performance. A range of pre-determined financial and service targets must be met and the employee must perform satisfactorily. Employees who improve the company's efficiency, productivity and quality of service are also recognised.

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A straight-forward profit-sharing system

Profit-sharing arrangements do not need to be complex. A company in the timber industry operates a simple profit-sharing system. Whenever the company makes a pre-tax profit in the preceding financial year, it pays a profit bonus to its employees twice the following year.

The bonus is equal to 4% of each employee's normal wage, and is paid to those employees 'on the books' on 1 April and 1 October. New employees are entitled to a pro-rata payment.

Profit-sharing in the public sector

Profit-sharing arrangements are not usually considered possible in public sector organisations. However, a major local government organisation has initiated profit-sharing arrangements in a number of NSW enterprise agreements.

The agreement commits the parties to reach agreement on the accounting principles and all other factors which define the profit-sharing arrangement. A Productivity Monitoring Committee oversights the arrangement.

A formula set out in the agreement distributes the net profit achieved each year. The Council concerned is paid 50% of the net profit, in recognition of its share of risks/gains it has assumed in the in-house tendering process.

Up to 50% of the profit is distributed to employees. While some of it is paid immediately as a lump-sum, a significant amount is retained as a contingency for investment in future years. It can be used in areas such as employee training and/or minor equipment for external work. If it remains unspent at the end of this later period, it is then returned to employees.

Staff can elect to have the bonus paid in the most tax-efficient manner possible. It can be paid in a form other than cash, providing that it is legal and cost-neutral to the employer.